Mohit Oberoi
Snowflake stock (NYSE: SNOW) released its earnings for the fiscal fourth quarter of 2023 yesterday after the markets closed. While the cloud company posted better-than-expected earnings, its guidance fell short of estimates.
Snowflake reported revenues of $589 million in the fiscal fourth quarter that ended in January. Its revenues rose 53% YoY and were ahead of the $576 million that analysts were expecting.
The company’s Product revenues rose 54% YoY to $555.3 million in the quarter. It had 7,828 total customers at the end of the fiscal year and of these 330 had trailing 12-month revenue in excess of $1 million.
It reported a net revenue retention rate of 158% and said that its remaining performance obligations were $3.7 billion which is 38% higher YoY.
The company reported a per-share loss of 43 cents which was narrower than the 66 cents that analysts were expecting. In the corresponding quarter of the previous year, Snowflake reported a per-share loss of 64 cents.
Commenting on the earnings, SNOW CEO Frank Slootman said, “Snowflake finished fiscal 2023 with 70% year-over-year product revenue growth, totaling $1.9 billion. Non-GAAP adjusted free cash flow margin for the year was 25%.”
While major tech companies have announced layoffs, Snowflake expects to add 1,000 people in the current fiscal year. The company added a net of 1,900 employees in the fiscal year 2023.
Snowflake Guidance Fell Short of Estimates
Snowflake said that it expects Product revenues in the fiscal first quarter to be between $568 million to $573 million which was below the $582 million that analysts were expecting.
The company expects its fiscal year 2024 Product revenues at $2.70 billion—a YoY rise of 40%. The guidance trailed analysts’ estimate of $2.83 billion. While the company lowered its revenue guidance, it upwardly revised the adjusted free cash flow guidance from 23% to 25%.
Amid slowing sales, US tech companies have been looking to cut costs. Also, as tech stocks have crashed, many tech companies have increased buybacks. Snowflake too announced a $2 billion stock buyback program during the earnings call.
While many have criticized stock buybacks and the US has imposed a 1% excise on share repurchases, Berkshire Hathaway chairman Warren Buffett supported buybacks in this year’s shareholder letter.
Berkshire Hathaway is the second largest stockholder of Apple. Buffett bought more Apple shares in 2022 and added to the already humongous position in the company. The conglomerate also holds SNOW shares.
SNOW Expands Partnership with Amazon
Separately, Snowflake announced that it would expand its partnership with Amazon’s AWS. Slootman said, “We are continuing to strengthen our partnership with deep collaborations in industry vertical solutions and product integrations in machine learning capabilities, with a single-minded focus on what’s best for our customers.”
Notably, AWS’s revenue growth also fell to 20% in Q4 2022, which is the lowest since Amazon started to report its financials. However, when it comes to profits, AWS is the key driver of the company’s profits and was the only profitable business segment in Q4 2022.
While Amazon stock has plunged, most analysts advise buying Amazon stock. Among others, analysts are optimistic about the long-term outlook for the company’s cloud business.
Coming back to Snowflake, markets have given a thumbs down to its earnings and guidance. The stock is down 7% in premarkets and looks set to erase its 2023 gains.
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This article was written for Business 2 Community by Mohit Oberoi.
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